The democratic disruption of finance

Wednesday, April 23, 2014

There seems to be no limit to the exciting possibilities that come from combining technical innovations, the internet, and social media. It is a phenomenon that has been revolutionising journalism and entertainment; and, by helping to overcome coordination challenges, it has also had political consequences in a growing number of countries – all of which means an ever-evolving set of opportunities and risks.

What is less appreciated, however, is the extent to which a broadly similar phenomenon may be starting to play out in finance, via a democratisation process that could gradually reconfigure a notable part of the institutional landscape, particularly in consumer finance, while challenging regulators to adapt.

Bitcoin is the most visible – albeit far from a good – example of this nascent development, having attracted attention from specialists, regulators, and, slowly but surely, the public. But the crypto-currency phenomenon is far from the only example, and it is certainly not the most consequential one. Its impact, both actual and potential, is relatively limited when compared to ongoing attempts to enhance and democratise lending, borrowing, investing, and payments and settlements.